Thursday, June 28, 2012

Ten Myths of “Say on Pay”

A new paper says shareholder voting on executive pay doesn't improve compensation practices.

“Say on pay” is the practice of granting shareholders the right to vote on a company’s executive compensation program at the annual shareholder meeting. This relatively recent phenomenon was adopted in the United States in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. 

At least once every six years, companies are required to ask shareholders to determine the frequency of future say-on-pay votes (with the options being every one, two, or three years, but no less frequently). Advocates of say on pay contend that the practice of submitting executive compensation for shareholder approval increases the accountability of corporate directors to shareholders and leads to more efficient contracting, with rewards more closely aligned with corporate objectives and performance. 

Professor David F. Larcker, Allan McCall, Gaizka Ormazabal, and Brian Tayan examine this issue in detail.

Read the complete Closer Look Series research piece

Explore More Topics, Issues and Controversies in Corporate Governance via the Stanford Closer Look Series 

The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important.